Brazil And Private Equity’s Foolish Heart

Come on in private equity. Guido Mantega’s finance ministry sees the positive side of the depiction of private equity in a popular soap. REUTERS/Ueslei Marcelino

Chin up, Mitt Romney: it’s not only in the U.S. that private equity has been demonized in the popular imagination.

In Brazil, a nascent but rapidly growing market for private equity investing, many ordinary folk will have had their introduction to the asset class via “Insensato Coracao,” a popular soap opera that aired last summer on Globo TV.

In this soap, the title of which means “foolish heart,” one Horacio Cortez has established a private equity fund that invests in a non-existent wind-power company. Cortez has also been filmed bribing a politician. One of his investors, a leading character in the soap, has to grapple with the decision of whether to demand the return of her capital, having discovered his shenanigans.

Is it possible that the producers of the show are close readers of Private Equity Analyst? The show’s themes are certainly topical, including the question of whether limited partners have been prone to fall for hype about renewable energy, the frequent dilemma of how LPs tackle underperforming funds, and the necessity of anti-bribery due diligence.

To the ordinary viewer, however, the takeaway is more likely to be that private equity is shady and unscrupulous. In the end, Cortez gets his come-uppance, being sent to jail.

But, here’s where the Brazilian finance ministry jumps in with a game attempt at accentuating the positive. The ministry has an essay on its website extolling the educational virtues of the show, based on interviews conducted with experts.

Cortez’ fraud shows the importance for investors of knowing who they’re investing with and the need for due diligence, according to the essay. Regulators around the world would certainly cheer this sentiment.

But, the ministry adds, the fraud here wouldn’t be open to the average person anyway because it involved derivatives, which are accessible only to qualified investors. Bolstering its defense of private equity, the ministry writes that the profit to be made in private equity isn’t “easy money” at all, despite what’s depicted in the soap, and that high returns often only come from taking on higher risk.

With its government apparently springing to the defense of private equity, is it any wonder that private equity firms are flocking to Brazil?